00:00I've heard a lot of investors talk about the U.S. Treasury as if it's a credit.
00:04Do you think they're sort of overstating the problems that we've got in Washington, D.C., or do you think that's fair enough?
00:10I don't think the U.S. Treasuries are a credit.
00:15Again, if you compare with other sovereign bond markets, you're kind of looking at probably, again, the cleanest dirty shirt.
00:24So, you know, the government has the ability to pay its debt and will continue to do so.
00:30So it's not a worry to me.
00:32Maybe that could change, but it's not a worry.
00:34When you say others, relative to who?
00:36Let's talk internationally.
00:37What are you talking about?
00:38So right now, by the way, internationally, we're long European stocks.
00:43But in the bond markets, we've also added to non-U.S. bonds.
00:48We're overall short treasuries, and we like non-U.S. bonds because in a lot of markets, there's a desire to lower rates probably faster than in the U.S., and, you know, we hedge the exposure.
01:02So we like that tactically.
01:03We still hold treasuries.
01:04We're just underweight.
01:06We're also long equities in Europe.
01:08Well, just to build on that, there's this question about whether you love this on a relative basis or whether it's a currency trade, right, whether ultimately this is going to come down to the rate differential.
01:18Or whether this is something having to do more with the idea of credit and desire to be in a particular country.
01:24Look, again, I don't think that U.S. treasuries are a credit.
01:28I do think that there are real concerns with deficits and budget, and that is starting to be reflected by bond investors.
01:35I know you all talk often about the bond vigilantes, but I don't think it's the same thing that, for example, happened in the U.K. with the list trust moment.
01:43I know you've talked about this on your show.
01:45Extensively.
01:45So it's more about diversification.
01:47Like, we don't want to have just treasuries, and we think there's an opportunity for rates to come down for some duration gains outside the U.S., so we go long.
01:54So you talk about the equity portion, particularly in Europe, and a lot of people are saying maybe that's been overplayed, given the fact that they still have to get their act together.
02:02Yeah, it's significant.
02:03It's up a lot.
02:04And there is this feeling of whether European nations are going to come together and actually make an agreement.
02:09Do you think there's more upside?
02:09I think there's more upside, but you're right.
02:12Europe has outperformed the U.S. on the equity side by 10 percent year to date.
02:16So, you know, it's starting to feel rich.
02:19But, you know, give Europe a break.
02:21It's actually underperformed the U.S. by 138 percent over the last 10 years.
02:26It's been a value trap.
02:28Now, a lot of strategists will say there's a valuation advantage, and there is one, even if you control for the different sector composition between Europe and the U.S.
02:38And there is a reason why the U.S. has outperformed.
02:41It's actually justified by fundamentals.
02:43If you look at the return on equity of the U.S. stock market, it's consistently improved and trended up.
02:49And in Europe, it's been flat.
02:50However, that differential is now flattening and trading sideways.
02:55So fundamentals are starting in terms of growth and sustainable growth to look more similar in terms of the rate of change.
03:02Then you add on top of that, what's the catalyst to unlock the valuation advantage?
03:07Well, German stimulus, easy monetary policy, and a banking sector that now can make money because we've escaped the zero-rate environment.
03:16So banking sector in Europe that's trading at one times book value used to be two times book value pre-financial crisis.
03:23Still an opportunity here.
03:25All that I'm saying with the caveat that we still like U.S. stocks for the long run.
03:30I'm not talking about the end of U.S. exceptionalism.
03:33I'm talking about a tactical overweight where the valuation advantage of Europe can continue to get unlocked over the next 6 to 12 months.
03:40Key word is tactical.
03:41Time frame is 6 to 12 months.
03:43That's not a man that's betting this decade-long structural underperformance is over.
03:46Is that fair to say?
03:47I'm not.
03:48I think the U.S. big tech companies are awesome.
03:52The way they generate cash flows, the way they protect their margins, the way they grow, the innovation.
03:57And I think that in the long run it will continue.
03:59But they're trading.
04:00This is all priced in.
04:01They're trading at high multiples.
04:03How does the tariff story factor into what you're describing, the lack of a deal between the Europeans and the U.S.?
04:08Yeah, you know, the counterintuitive thing about the tariffs here is that they've actually prompted Europe to do more for themselves, including stimulus.
04:18And perhaps there's a deregulation impulse that will come out of Europe as well.
04:23So you do this, you set all these barriers, and now you hear policymakers in Europe wanting to maybe be more like the U.S.
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